The Planning Department told a meeting of the Town Planning Board yesterday that it had no objection to including flats as a permitted use in the redevelopment plan for the 80-year-old buildings.

'This is to allow flexibility in the scheme, so that residential use, if found feasible and viable, could be permitted upon application to the Town Planning Board in future,' a department spokesman said.

The department said it would require detailed studies to assess the structural feasibility of converting the existing buildings into flats that met modern living standards.

Lawrence Lam Kwok-wai, a senior officer of social welfare group St James's Settlement, hailed the move as progress. 'It means that the government has realised the residents' need in the area,' he said.

The Blue House, on Stone Nullah Lane, along with the adjacent Yellow House and Orange House, are home to about 30 families, many of whom say they want to stay on, despite the age of the buildings.

In March this year, a joint development plan by the Urban Renewal Authority and the Housing Authority proposed transforming the 9,961 sq ft area into a cultural, commercial and tourist zone, while denying any residential use in the area.

The authority received a total of 53 comments from residents, social workers, scholars and artists, most of them asking the government to allow the residents to move back and to preserve the community network and characteristics.

Mirana May Szeto, an assistant professor at the University of Hong Kong, said the preservation policies must be kept flexible in this case.

'The Blue House area is unique. Its existing and living communities and daily life are part of the tangible and intangible heritage of Hong Kong,' she said. 'The area will become an empty shell without the people living in it.'